The central bank of the Philippines kept its key policy rate steady at 3.0 percent but said the risks to the inflation outlook remain weighted toward the upside due to possible further rises in oil prices and it was “watchful against any signs of second-round effects and inflation becoming broader based.”
Bangko Sentral ng Pilipinas (BSP), which has maintained its monetary policy stance since September 2014, said it latest forecast shows higher inflation this year but it is still expected to moderate and then settle within the target range of 3.0 percent, plus/minus 1 percentage point.
But BSP raised its 2018 inflation forecast to 4.3 percent – above its target range – from an earlier 3.4 percent due to higher global oil prices, higher taxes and food prices.
For 2019 BSP forecasts 3.5 percent inflation, up from 3.2 percent previously forecast.
Inflation in the Philippines accelerated to a higher-than-expected 4.0 percent in January from 3.3 percent in December, for the highest rate since October 2014, as the cost of food, transport and housing rose.
Although the BSP has said the rise in inflation is temporary and partly reflects last month’s tax increases, economists expect the central bank to raise its rate soon, with some speculating the BSP could have raised its rate today while others are looking toward a March hike.
Today’s statement by the BSP’s monetary board is more hawkish than its statement in December when it said it would remain vigilant against any risks to the inflation outlook and will adjust policy settings to ensure inflation is consistent with its target and still supports growth.
“The monetary board stands ready to take appropriate measures as necessary to ensure that the monetary policy stance continues to support price and financial stability,” the BSP said today.
Interest rates globally are moving upwards in response to solid global growth and three central banks in Asia – South Korea, Malaysia and Pakistan – have already raised their rates in recent months.
The BSP added that prospects for economic activity continue to be firm on the back of robust domestic demand and the sustained recovery in global economic growth.
The Philippine economy grew by an annual rate of 6.6 percent in the final quarter of 2017, down from 7.0 percent in the third quarter.
Bangko Sentral ng Pilipinas issued the following statement: